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Simplify your system

  • #1
  • First Post: Mar 28, 2007 10:58pm Mar 28, 2007 10:58pm
It has come to my attention that old time traders that I met tend to say "Keep it sweet and simple". How did they really make money by keeping their system simple ?

The simplest answer that I can think of is this "Old time traders defines when not to trade."

Many times I have seen thread that discusses trading system that grows more complex as time passes by. It usually starts simple and then people lose money and they start introducing new rules. e.g if market is like this, I will do this (repeat 100x and create new 100 rules).

To keep things simple, one should just define when not to trade. "Not to trade" is the hardest part for most newbies.

Everything is back to psychology.

Simplify your system. Define when not to trade at all.

If market is A .. long
If market is B .. short
Everything else (C,D,F,G,H....till Z), do nothing.

Just to share what I have learnt from the old guys that I have met.
  • #2
  • Mar 29, 2007 4:29am Mar 29, 2007 4:29am
Those system threads you reference get so long and complicated because the average trader is incapable of dealing with losses in a functional manner. Because of this they try to eliminate every loss a system generates. When your trying to establish a rule to eliminate every potential loss, the number of rules eventually grows to be so cumbersome that the system can't be traded.

I think the nature of the advice given out by the "old timers" ( ) is to avoid this destructive process by limiting the number of rules to whatever is critically necessary to capture the trading edge. When you keep it simple, you can focus on executing the system perfectly, which is really what makes the difference between long term success and failure.

Just for reference, my system has 5 rules.

 

  1. The entry criteria. This is the specific set of market variables which when they occur I place a trade. No if's, and's, or but's.
  2. The stop loss rule. There is only one.
  3. The TP rule. There is only one.
  4. A single filter for eliminating orders that "almost" executed (IE-price came within X pips entry and reversed by >Y pips).
  5. A rules for how I handle open trades going into rollover (which on an institutional platform is a significant event).

  • #3
  • Mar 29, 2007 4:56am Mar 29, 2007 4:56am
Quoting luqmanz
It has come to my attention that old time traders that I met tend to say "Keep it sweet and simple". How did they really make money by keeping their system simple ?

The simplest answer that I can think of is this "Old time traders defines when not to trade."

Many times I have seen thread that discusses trading system that grows more complex as time passes by. It usually starts simple and then people lose money and they start introducing new rules. e.g if market is like this, I will do this (repeat 100x and create new 100 rules).

To keep things simple, one should just define when not to trade. "Not to trade" is the hardest part for most newbies.

Everything is back to psychology.

Simplify your system. Define when not to trade at all.

If market is A .. long
If market is B .. short
Everything else (C,D,F,G,H....till Z), do nothing.

Just to share what I have learnt from the old guys that I have met.
I think you learned some valuable info! Simple is better. I have read through a few posted "systems" on this Forum over the Past 2 months now....and I can tell, Many have given great thought and time into the endeavor. Yet by the time I fastforward to page 100....it had been through so many "revisions".....and become so complicated, I could see no use for it....I'd be in a constant flux of "paralysis by analysis".
True also is the fact fact that being Flat the market is also trading....it is making a decision to be out of the market.

I think Darkstar above also stated it well.....
Good luck out there.
Proper Prior Planning Prevents Piss Poor Performance
  • #4
  • Edited Mar 30, 2007 9:38am Mar 29, 2007 10:21am | Edited Mar 30, 2007 9:38am
Quoting luqmanz
It has come to my attention that old time traders that I met tend to say "Keep it sweet and simple". How did they really make money by keeping their system simple ?

The simplest answer that I can think of is this "Old time traders defines when not to trade."

Many times I have seen thread that discusses trading system that grows more complex as time passes by. It usually starts simple and then people lose money and they start introducing new rules. e.g if market is like this, I will do this (repeat 100x and create new 100 rules).

To keep things simple, one should just define when not to trade. "Not to trade" is the hardest part for most newbies.

Everything is back to psychology.

Simplify your system. Define when not to trade at all.

If market is A .. long
If market is B .. short
Everything else (C,D,F,G,H....till Z), do nothing.

Just to share what I have learnt from the old guys that I have met.
As an "old time trader" and an "old guy" I can only agree with what you have said above....

1. As you get older you realise that deals that come to you are the best deals. As you get older (and more experienced) you start to realise that it is better to wait for the market to come to your target points where the odds are (maybe/hopefully !!) in your favour.

Some people here (the young and inexperienced) seem to want to bet on every tic. The thing that kills new traders is the "wild punting" on everything that moves two ticks. And some threads here encourage people to think that they should trade in up to 20 different markets. (Is it really a surprise that the mortality rate of traders is 95% ???)

2. The Forex markets are arguably the most "trendy" market there is, especially the Euro. Once a trend is in place, it takes a lot of power to reverse it. Take a look at the weekly charts. This current "long" started back in early Dec 2005 at approx 1.1650. (approx 1700 pips from where it is now) It had a relatively "minor" correction from approx 1.3000 to 1.2500 before continuing on to where it is today.

Even more strong evidence for the power of the trend is that the above "long" is part of an even stronger "long" from 0.8363 from July 2001.

3. A much wiser man than me once told me to stop thinking that you have to "outsmart" the market. You really don't have to..this business is very easy if you leave your brain at the door....just follow the trend = follow the money =going with the flow = barking with the big dogs.

Stop thinking that "it can't be that easy".......it really is!!!

4. So, why doesn't everyone trade with the trend? Most retail traders are thrill jockeys who are full of adrenalin and inexperience. (Young, dumb and full of cum, so to speak). They want to trade all the time "for the thrill". They want "to take on the market" (to show that they are "The Man") or they want to be greedy by getting in exactly at the turning points (to prove to themselves how smart they are). They then wonder why they get flattened by the Forex Trend Express train.

5. A REALLY boring, but very profitable stategy is "Buy on dips and hold" (Euros, GBP etc)...And use the Jacko hedging method to lock in profits.

http://www.forexfactory.com/showthread.php?p=132721

.
  • #5
  • Mar 29, 2007 10:42am Mar 29, 2007 10:42am
An interesting point:

Below is a copy of a thread from the only other Forum of which I have been a member. (I haven't posted there for ages...too many loopies were hanging around...)

It is dated EXACTLY one year ago on March 29 2006. See Post 5305

http://www.learncurrencytrading.com/...=2373&page=354

Quote
My opinion...for what it is worth...

We are the start ...(actually, the turning point was November 15 2005)...
of a major bull run in the Euro that may continue for maybe 1 or 2 glorious years.

The strategy is not difficult...buy and hold...then buy some more...then buy some more...

No need to over-leverage...

I seriously doubt that we will see under 1.2000 again in the near future unless there is a major disaster /calamity/new war etc

I personally won't be shorting this market again. It is not worth the pain of betting against the trend...

I will also be trading from the longer term view from now on...I am seriously loaded with "longs" from the low 1.2000's and will probably just buy more every time the market goes up 100 pips.

So I won't be making too many comments here in the future...but I will be watching with interest

I just thought that it was interesting....

.

  • #6
  • Mar 29, 2007 11:06am Mar 29, 2007 11:06am
jacko,

that was a great prediction.

could you tell us what makes you think the major trend has reversed at that time ? Trendline ? If possible i would like to see how you draw the trendline at that time.
  • #7
  • Edited 11:33am Mar 29, 2007 11:20am | Edited 11:33am
Quoting luqmanz
jacko,

that was a great prediction.

could you tell us what makes you think the major trend has reversed at that time ? Trendline ? If possible i would like to see how you draw the trendline at that time.
Sure, no problems...

Pull up Euro weekly chart.
Connect falling trend line to touch highs of March 14, Sept 5, Dec 12 and Dec 19. (All in 2005)

Trend line was broken in early January, then confirmed. (Market bottomed on November 15 2005)

Remember, the forex market is the trend-iest market available...esp the Euro.

.
  • #8
  • Mar 29, 2007 11:30am Mar 29, 2007 11:30am
Quoting luqmanz
jacko,

that was a great prediction.

could you tell us what makes you think the major trend has reversed at that time ? Trendline ? If possible i would like to see how you draw the trendline at that time.
Luqmanz,

What is more interesting is that until that time (March 2006), I was a RABID "short". I was vociferous about going "short" because the Forex Express was definitely a South bound Express.
When I look back through my earlier posts on that Forum (DailyFX), I was really quite rude...but still...I was making money and others were losing money...so I was just trying to help.

.
  • #9
  • Mar 29, 2007 11:31am Mar 29, 2007 11:31am
Quoting jacko
Remember, the forex market is the trend-iest market available...esp the Euro.
Sorry I have to disagree with you. See attached. I was hoping forex was like this too. Just a dream.

I'm still trying to simplify my trading mentality/attitude now, not system. Still got those fear, greed, euphoria, etc inside. Tough to take care of these ones. Hope someday I'll manage to get out of all these completely and be a trader.
Attached Image
Tra-X
  • #10
  • Mar 29, 2007 11:42am Mar 29, 2007 11:42am
Quoting Traex
Sorry I have to disagree with you. See attached. I was hoping forex was like this too. Just a dream.

I'm still trying to simplify my trading mentality/attitude now, not system. Still got those fear, greed, euphoria, etc inside. Tough to take care of these ones. Hope someday I'll manage to get out of all these completely and be a trader.
Then why not just go "long" on Dow futures ?
1. Buy and Hold
2. Add (as profits accumulate).

.
  • #11
  • Mar 29, 2007 11:45am Mar 29, 2007 11:45am
Quoting Traex
Sorry I have to disagree with you. See attached. I was hoping forex was like this too. Just a dream.

I'm still trying to simplify my trading mentality/attitude now, not system. Still got those fear, greed, euphoria, etc inside. Tough to take care of these ones. Hope someday I'll manage to get out of all these completely and be a trader.
Seems pretty much correct to me... Not seeing what you are according to Jako's times.
Attached Image
  • #12
  • Mar 29, 2007 11:49am Mar 29, 2007 11:49am
Quoting smjones
Seems pretty much correct to me... Not seeing what you are according to Jako's times.
smjones....Thanks for the Chart (I am a techno-moron so I couldn't put one up)


The chart that Traex has put up is a very long term Dow Jones Index Chart. I think he is saying that the Dow is trend-ier than the Euro.

.
  • #13
  • Mar 29, 2007 11:52am Mar 29, 2007 11:52am
Quoting jacko
smjones....Thanks for the Chart (I am a techno-moron so I couldn't put one up)


The chart that Traex has put up is a very long term Dow Jones Index Chart. I think he is saying that the Dow is trend-ier than the Euro.

.
I suppose it is a question of time scale. But either way the trend did change... LOL

I see what you are saying about trendiness, traex...
  • #14
  • Mar 29, 2007 12:48pm Mar 29, 2007 12:48pm
Quoting jacko


5. A REALLY boring, but very profitable stategy is "Buy on dips and hold" (Euros, GBP etc)...And use the Jacko hedging method to lock in profits.
http://www.forexfactory.com/forexfor...721#post132721
Hi Jacko
You're starting to become a small celeb
The link isn't working, but I believe I've already read about the "re-enter after price has moved 50 pips past and returns" if that's what it is
I'm curious, since that way of trading is how I started out - no stops, using dips as bargains and taking profit occasionally...

My question is, if you write "Buy on dips and hold", do you only cash out completely when a trend reverses and then apply the opposite until it turns again? (-> you said you were shorting EURUSD before for a while, so you would have to know when a real(!) turn comes to flip the logic)
Do you take profit or only hedge and close the hedged position out for profit then let the longs run again?
Basically - is it really buy and HOLD or is it buy, hedge and close, buy some more, repeat? Or how exactly?

Best regards,

SeekingLight
Trust price. Know yourself.
  • #15
  • Mar 29, 2007 9:07pm Mar 29, 2007 9:07pm
This Chart that Newbietrader101 put up may also be of assistance. (Thanks Newbie)

http://www.forexfactory.com/showthre...123#post258123

.
  • #16
  • Mar 29, 2007 9:11pm Mar 29, 2007 9:11pm
Quoting smjones
Seems pretty much correct to me... Not seeing what you are according to Jako's times.
Thanks jacko and smjones for the chart.

That reversal pattern reminds me of the reversal described by Jesse Livermore. When the trend reverse, wait for confirmation (confirmation occured in March 2006)
  • #17
  • Mar 30, 2007 12:42am Mar 30, 2007 12:42am
Quoting jacko
3. A much wiser man than me once told me to stop thinking that you have to "outsmart" the market. You really don't have to..this business is very easy if you leave your brain at the door....just follow the trend = follow the money =going with the flow = barking with the big dogs.
Good advice indeed, and following it is wise. However, another pitfall many make is overinvesting in the trend. You can't just dump the majority of your equity into 1 currency and expect not to take a loss sooner or later that kills your account. If you use leverage (100:1 or 200:1), remember your using 100-200 times your money. Any change in position is multiplied by that much. Follow the trend indeed but make sure your position can take a 300-400 point swing to the bad before returning back on the overall trend. Otherwise, your analysis may be valid, but your position can't handle the natural ups/downs within the trend.

My two cents worth

GirlFlyer
  • #18
  • Mar 30, 2007 5:15am Mar 30, 2007 5:15am
hi jacko ,
I trade just elliot waves and despite of you i only trade reversal points !

trading with trend is good idea , but Stop loss make me nervous . when

someone want to trade with trend finding a good and tiny stop loss is somthing so difficult.

but in elliot waves trading and reversal points trading , stop loss is usually small and profit usually extend much ,although most of trades leads to loss.
  • #19
  • Edited 6:48am Mar 30, 2007 6:32am | Edited 6:48am
Quoting Darkstar
Those system threads you reference get so long and complicated because the average trader is incapable of dealing with losses in a functional manner. Because of this they try to eliminate every loss a system generates. When your trying to establish a rule to eliminate every potential loss, the number of rules eventually grows to be so cumbersome that the system can't be traded.

I think the nature of the advice given out by the "old timers" ( ) is to avoid this destructive process by limiting the number of rules to whatever is critically necessary to capture the trading edge. When you keep it simple, you can focus on executing the system perfectly, which is really what makes the difference between long term success and failure.
I'm going to disagree, for the sake of discussion.

The threads get complicated because someone posts a system, a set of rules, and some of the statements are ambiguous, &/or not every situation is covered.

Then, people ask questions, "what do you do when...." or, "what about this setup?"

The original author then says, "well, I wouldn't take that trade, because even though they crossed, they've been very close together for awhile, and that's not the best trade because of this other thing..." and the more questions that get asked, the more exceptions the author gives to his system.

Traders follow the system perfectly, then consistently lose. It's not because they can't handle losses, if that were the case they wouldn't still be around. They don't handle the nuances the way a successful trader does.

I contend that successful traders can't tell you exactly what they do. Their "system" can't encompass all that goes on in a trader's mind.

That's why Mark Douglas says there are very few successful traders that didn't have a mentor. There are going to be many, many times when the mentor says, "now you need to do this" and the mentee will say, "Oh, you didn't tell me that before."

And that is why, I believe, an EA, or any system traded mechanically, will never work. The thing that makes a system work is trader discretion which comes with experience, not adding another indicator!
  • #20
  • Mar 30, 2007 6:42am Mar 30, 2007 6:42am
Quoting oedipean
hi jacko ,
I trade just elliot waves and despite of you i only trade reversal points !

trading with trend is good idea , but Stop loss make me nervous . when

someone want to trade with trend finding a good and tiny stop loss is somthing so difficult.

but in elliot waves trading and reversal points trading , stop loss is usually small and profit usually extend much ,although most of trades leads to loss.
did you use anything to confirm the reversal?
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